6- Distribution and

Channel Management
Decisions

Supply Chain

A Supply Chain is a network of

facilities and distribution options
that performs the functions of
procurement of materials;
transformation of these material
into intermediate and finished
products; and distribution of
these finished products to
customers.

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Supply chain management starts before

physical distribution.
It involves:

Procuring the right inputs (raw materials,

components and capital equipment);
Converting them efficiently into finished
products;
And dispatching them to the final
destination
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Supply chain: make and sell

Vs.
Demand chain: sense and respond
Value Delivery Network: is made up of
the company, suppliers, distributors and
ultimately customers who partner with
each other to improve the performance
of the entire system in delivering
customer value.
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Marketing/Distribution
Channels

Sets of interdependent organizations

Make a product or service available for use or
consumption by the consumer or business user
Set of pathways a product or service follows
after production , culminating in purchase &
use by the final end user.
Merchants
Agents
Facilitators
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Marketing Channel
System

The particular set of marketing

channels employed by a firm.
Chosen channels affect all other
marketing decisions- Pricing,
Sales force & Advertising
Push strategy
Pull strategy

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How a Distributor Reduces

the
Number of Channel
Transactions
1
2
3
4
5
6

A. Number of contacts
without a distributor
MxC=3X3=9

7
8
9
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= Manufacturer

= Customer
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How a Distributor Reduces

the
Number of Channel
Transactions
1
Store

3
= Manufacturer

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B. Number of contacts
with a distributor
MxC=3+3=6

4
5

= Customer

= Distributor

Role of Marketing
Channels

Intermediaries bring in pooled financial resources

They help break bulk and create assortment for the
customer
Help match demand and supply
Add value by bridging the major time, place and
possession gaps
They are normally more cost-effective due to
specialization
Many small value items, like candies, chewing gum, and
ball point pens, with large volume ambitions cannot be
sold through direct marketing due to assortment and
cost problems
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Distribution Channel
Functions
Information
Risk
Risk Taking
Taking

Promotion
Promotion

Financing
Financing

Contact
Contact

Physical
Physical
Distribution
Distribution
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Matching
Matching
Negotiation
Negotiation

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Number of Channel
Levels

Channel Level: a layer of

intermediaries that performs
some work in bringing the
product and its ownership
closer to the final buyer.

Direct Marketing Channel

Indirect Marketing Channel

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Channel Levels
0-level channel

Manufacturer
Manufacturer

Consumer
Consumer

1-level channel

Manufacturer
Manufacturer

Retailer
Retailer

Consumer
Consumer

Retailer
Retailer

Consumer
Consumer

2-level channel
Mfg
Mfg

Wholesaler
Wholesaler

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12

Industrial Marketing
Channels

1- Level
Industrial
distributors
2- Level
Manufacturers
representative
Manufacturers
sales branch
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Consumer

Manufacturer

0- Level

3- Level
13

Zero-Level Channel (direct

marketing channel)

Door-to-door sales (Eureka Forbes)

Home parties (Tupperware)
Mail Order
Telemarketing
TV Selling (Asian Sky Shop)
Internet Selling (Indiatimes)
Manufacture Owned Stores (Bata,
Indian Oil)

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Types of Flows

Physical flow of products

Flow of ownership
Payment flow
Information flow
Promotion flow

Go-to-Market or Hybrid
channels
Channel integration

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15

Channel Conflict,
Cooperation and
Competition

Disagreement among marketing

channel members on goals and roles
who should do what and for what
rewards
Types of conflict and competition

Vertical channel conflict

Horizontal channel conflict
Multichannel conflict
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Channel Integration
and Systems

Conventional Marketing Channel

Vertical Marketing System

Corporate VMS
Administered VMS
Contractual VMS

Franchise organisation

Horizontal Marketing Systems

Multichannel Marketing Systems (Hybrid
Marketing Channels)
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Comparison of Conventional
Distribution Channel with
Vertical Marketing System
Produce
r
Wholesal
er

Produce
r
Wholesal
er

Retailer

Retailer
Consume
r

Conventional
marketing channel
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Consume
r

Vertical marketing
system

18

Multichannel
Distribution System
Produce
r

Catalogs,
Telephone
, Internet

Retailer
s

Consumer
Segment 1
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Consumer
Segment 2

Distributor
s
Dealers

Business
Segment 1

Sales
Force

Business
Segment
2
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Changing Channel
Organisation

Disintermediation: the cutting out

of marketing channel
intermediaries by product or
service producers, or the
displacement of traditional
resellers by radical new types of
intermediaries.
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Channel-Design
Decisions
Designing a channel system
involves four steps:

Analyzing customer needs

Establishing channel objectives
Identifying major channel alternatives
Evaluating major channel alternatives
Designing international distribution
channels
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Customers Desired
Service Levels

Lot size
Waiting time
Spatial convenience
Product variety
Service backup

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Establish Objectives and Constraints

Vary with product characteristics

Must take into account the strengths and weaknesses of
different types of intermediaries
Competitors channels
Must adapt to the larger environment

Identify Major Channel Alternatives

Types of Intermediaries
Number of Intermediaries

Exclusive distribution

Exclusive dealing

Selective distribution
Intensive distribution

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Terms and Responsibilities of

Channel Members

Price policy
Conditions of sale
Distributors territorial rights
Mutual services and responsibilities

Evaluate the Major Alternatives

Economic Criteria- Channel Advantage

Control and Adaptive Criteria
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Training
Training
Motivating
Motivating

Channel
Management
Decisions
FEEDBACK

Selecting
Selecting

Evaluating
Evaluating
Modifying
Modifying
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Selecting

Number of years in business

Other lines carried
Growth and profit record
Financial strength
Cooperativeness
Service reputation
(Retail/Departmental stores)
Locations
Future growth potential
Type of clientele

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26

Motivating

Channel power- ability to alter

channel members behaviour so
that they take actions they would
not have taken otherwise

Coercive power
Reward power
Legitimate power
Expert power
Referent power
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27

Logistics

Logistics is the art and science of

managing and controlling the flow of
goods, energy, information and other
resources.
It involves planning the infrastructure to
meet demand, then implementing &
controlling the physical flows of
materials and final goods and related
information from points of origin to
points of use/consumption, to meet
customer
requirements at a profit.
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28

Logistics
Steady state flow systems are usually
optimized for one of several goals:
Avoid shortages
Minimize transportation costs
Minimum procurement time / minimum
total storage
** Logistics flow is particularly important in
JIT manufacturing in which great emphasis
is placed on minimizing inventory.

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29

Supply Chain
Management

Managing upstream and downstream

value added flows of materials, final
goods and related information among
suppliers, the company, resellers and
final consumers
Inbound
Outbound
Logistics

Suppliers

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Logistics

Company

Resellers

Reverse
Logistics

Custome
rs

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Reverse-Flow Channels

To reuse products pr containers

To refurbish products for resale
To recycle products
To dispose of products and
packaging

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31

Logistics Systems
Logistics
Logistics
Information
Information
Management
Management
Order
Order Processing
Processing

Costs
Costs

Minimize
MinimizeCosts
Costsof
of
Attaining
AttainingLogistics
Logistics
Objectives
Objectives

Submitted
Submitted
Processed
Processed
Shipped
Shipped

Logistics
Transportation

Functions
Warehousing
Warehousing

Water, Truck,
Rail, Pipeline & Air

Storage
Storage
Distribution
Distribution

Inventory
Inventory

When
Whento
toorder
order
How
Howmuch
muchto
toorder
order
Just-in-time
Just-in-time
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32

Transportation Modes
Rail
Rail

Nations
Nationslargest
largestcarrier,
carrier,cost-effective
cost-effective
for
forshipping
shippingbulk
bulkproducts,
products,piggyback
piggyback

Truck
Truck

Flexible
Flexiblein
inrouting
routing&&time
timeschedules,
schedules,efficient
efficient
for
forshort-hauls
short-haulsof
ofhigh
highvalue
valuegoods
goods

Water
Water

Low
Lowcost
costfor
forshipping
shippingbulky,
bulky,low-value
low-value
goods,
goods,slowest
slowestform
form

Pipeline
Pipeline

Ship
Shippetroleum,
petroleum,natural
naturalgas,
gas,and
andchemicals
chemicals
from
fromsources
sourcesto
tomarkets
markets

Air
Air

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High
Highcost,
cost,ideal
idealwhen
whenspeed
speedis
isneeded
neededor
orto
to
ship
shiphigh-value,
high-value,low-bulk
low-bulkitems
items

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Intermodal
Transportation

Containerization
Piggyback- rail and truck
Fishyback- water and truck
Trainship- water and rail
Airtruck- air and trucks
Private carrier
Contract carrier
Common carrier

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Integrated Logistics
Management

The logistics concept that emphasizes teamwork, both

inside the company and among all the marketing
channel organizations, to maximize the performance of
the entire distribution system
Cross functional teamwork inside the company
Building logistics partnerships

Cross-functional
Cross-company
Shared projects

Third party logistics (3PL)

An independent logistics provider that performs any or all of the

functions required to get its clients product to market

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35

Retailing

All activities involved in selling goods or

services directly to final consumers for their
personal, nonbusiness use

Non store retailing

Retailer a business whose sales come

primarily from retailing
Classified in terms of:

Amount of service
Breadth and depth of their product lines
Relative prices
How they are organized

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Types of Retailers

Specialty stores
Department stores
Supermarkets
Convenience stores
Discount stores
Off-price retailers
Superstores

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Wholesaling

All activities involved in selling

goods and services to those
buying for resale or business
use

Wholesaler a firm engaged

primarily in wholesaling
activities

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Types of Wholesalers

Merchant wholesalers

Full-service wholesalers

Wholesale merchants
Industrial distributors

Limited service wholesalers

Cash-and-carry wholesalers
Truck wholesalers (truck jobbers)
Drop shippers
Rack jobbers
Producers cooperatives
Mail-order wholesalers

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Brokers and agents

Brokers
Agents

Manufacturer's agents
Selling agents
Purchasing agents
Commission merchants

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Manufacturers and retailers

branches and offices

Sales branches and offices

Purchasing officers

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